JPMorgan Chase is throwing its considerable weight behind efforts to root out racial bias in the appraisal of homes in America.
As part of a new bank-wide commitment to fight housing inequality, JPMorgan is for the first time outlining specific legislation that can fight appraisal bias, backing the study of innovative ways to value homes and promoting efforts to boost sorely needed diversity in the appraisal industry.
Beyond appraisals, America’s biggest bank is promising to ease obstacles that make it harder for Black and Latinx households to buy homes, build wealth and access affordable housing.
“There are systematic barriers in housing — and we have a role to play in addressing them,” Heather Higginbottom, president of the JPMorgan Chase Policy Center and co-head of global philanthropy, told CNN Business.
That effort is highlighted by a new five-year $400 million philanthropic commitment that includes low-cost loans, equity and grants to nonprofits and affordable housing organizations. It’s part of a broader $30 billion pledge announced last October to ease racial inequality.
A $156 billion problem
Discrimination in the housing industry is both a result of and a contributor to America’s massive racial wealth gap. That’s because buying a home requires savings for a down payment (and these days, even all-cash offers), and owning a home is the most common way to build wealth.
Homes in majority-Black neighborhoods are valued on average $48,000, or 23%, less than those with few or no Black residents, according to a 2018 Brookings Institution analysis.
That gap existed even after the researchers controlled for differences in schools, crime and other neighborhood characteristics. This problem has amounted to $156 billion in cumulative losses, Brookings found.
“Discrimination and bias in appraisals contribute to inequity in housing values and adversely affect a critical source of wealth accumulation for minority families,” Michael Hsu, acting Comptroller of the Currency, said Tuesday at a virtual event on home appraisal bias. “The impact is large and cannot be ignored.”
Worse than before redlining was banned
The appraisal gap is just one part of the overarching inequality that exists in housing.
The Black homeownership rate is just 42% in the United States today, compared with 72% for White Americans, according to the Urban Institute. Incredibly, that 30-percentage-point gap is larger than it was in 1968 — when housing discrimination was legal.
In a new policy paper, JPMorgan warned that “worsening housing market conditions,” including a shortage of affordable homes, rising prices and barriers to down payments, “have put sustainable homeownership further out of reach for many Americans,” especially Black and Latinx people and low-income families.
“The hill is very steep,” said Jesse Van Tol, CEO of the National Community Reinvestment Coalition, a group that promotes fairness in banking and housing. “I don’t think we’ve even begun to put a dent in that program.”
Appraisal industry ‘needs to be revamped’
JPMorgan said other potential reforms to the appraisal industry include establishing new “anti-bias training requirements” for appraisers, allowing equal access to valuation data and techniques and creating new national standards for valuation methods.
“It’s an industry that really needs to be revamped, utilizing less judgment and more data,” Mark O’Donovan, CEO of Chase Home Lending, told CNN Business.
To promote that revamping, JPMorgan said it made a $1 million philanthropic investment in Ashoka and Brookings to launch a challenge that will study innovations to help narrow the appraisal gap.
The experience of Carlette Duffy put an exclamation point on these appraisal problems.
The appraised value of Duffy’s Indianapolis home more than doubled after she concealed she is Black by removing family photos and other items that indicated her race. Duffy had a White friend pose as her brother and meet the appraiser, and only communicated via email.
“The fact that I had to remove myself from my home in order for my home to have value — that’s the part that really hurts,” Duffy told CNN’s New Day last month. “It felt dehumanizing, it felt demoralizing.”
Less than 2% of appraisers are Black
JPMorgan and other big banks have been criticized for relying on discriminatory appraisals.
In March, JPMorgan agreed to pay $50,000 to an African American woman who alleged the bank undervalued her home because of her race. The agreement, approved by the US Department of Housing and Urban Development, called for JPMorgan to provide mandatory training related to appraisals to the bank’s home lending advisers and client care specialists.
Diversity is clearly lacking in the appraisal industry.
As of early 2019, 77.7% of appraisers identified as male and 85.4% as White, according to the Appraisal Institute. Less than 2% of appraisers identified as Black.
“There is a lot of subjective judgment that goes into making an appraisal. That means there is a lot of room for bias,” said Van Tol. “Banks should be thinking about who they do business with. Are they inadvertently supporting low valuations in minority communities?”
In an effort to promote more diversity, JPMorgan said it will provide mentors for trainees in an industry diversity pipeline program that aims to attract new people to the field and overcome barriers to entry.
The bank also said it has hired more than 100 people to a new role, known as the Chase community home lending adviser, that aims to help people become homeowners. JPMorgan said these are not commission-based positions.
O’Donovan, Chase Home Lending CEO, said the bank is trying to hire more people who “look like the communities we are investing in.”